Compressed margins for home flippers could be good news for first-time buyers
Homes flipped during the first quarter represented 6.9% of all sales, up from 5.9% in the previous quarter, according to a report released Thursday by real-estate data company Attom Data Solutions. As a share of overall purchases flipped homes are at a six-year high, same as this time a year ago. A marked increase in home flipping was one of the signs of an overheating property market in the lead up to the Great Recession a decade ago.
For home flippers, the increase in sales translated into larger profits. The average gross profit for a flipped property was $69,500 during the first quarter, representing the highest amount in nearly two decades. At the same time, the return on investment has tightened because of high home prices. It now stands at 47.8% on average, down from 50.3% a year ago.
“The 2018 housing market is a double-edged sword for home flippers,” Daren Blomquist, senior vice president at ATTOM Data Solutions, said in the report. They earn more when they sell the properties, but high prices mean that “flippers to pay more to acquire homes to flip.” Case in point: During the first quarter, 48,475 single-family homes and condominium units were flipped, a two-year low.
And as homes get snatched up quickly due to the historically low inventory, some markets present fewer opportunities for would-be flippers. The home flipping rate is down from a year ago across 55% of markets including Los Angeles, Las Vegas and Miami.
If margins continue to tighten and high prices keep more flippers from being able to afford to enter the business, that could be good news for would-be homebuyers struggling to afford a home purchase in some of the country’s most expensive housing markets.